Global Market Quick Take: Europe – 30 November 2023

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Equities: Most equity futures are up this morning in early European trading hours as inflation readings in Europe yesterday lifted sentiment and raised expectations for rate cuts next year from both the ECB and the Fed. Salesforce earnings results yesterday delivered a higher guidance on fiscal year earnings as cost cutting is delivering improved profitability. The VIX Index remains low closing around the 13 level yesterday. Direction in equities short-term will be dictated by where central policy rate bets for 2024 go, so if the market continues to pull forward rate cuts, then equities in the short term will move higher until rate cuts suddenly mean something else (hint recession incoming

FX: The dollar found a floor after dipping lower again earlier on Wednesday.  AUD was the outperformer in Asia today as it moved back towards 0.6650 on China stimulus hopes following the PMI miss. EURUSD also gave up the 1.10 handle yesterday after softer inflation prints in Germany and Spain and today’s regionwide CPI will be the next big test along with US PCE. GBPUSD stuck around 1.27 as Bailey said it is too early to talk about rate cuts. USDJPY testing a break of 147 after 10-year Treasury yields broke key support yesterday.

Commodities: Crude oil traders will be focusing on today’s OPEC+ meeting with yesterday’s bounce being driven by expectations the group will announce deeper production cuts to drive prices back up to preferred $85-95 range. Dovish repricing of the Fed also eased demand concerns, but weekly EIA data showed another surprise crude build. Copper briefly touched a 10-week high as mine closures brought supply risks back into focus. Gold extended its Santa rally on lower yields, although a recovery in dollar offset. While the risk of a short-term pullback cannot be ruled out, gold in our opinion remains on track for further gains in December and into 2024. Thai rice, the Asian benchmark, trades close to a 15-year high on weather related supply disruptions

Fixed income: Treasuries extended their rally, with the 2-year yield falling 9bps to 4.65% and the 10-year yield sliding 7bps to 4.26%. The rally kicked off following softer prints in Australia and Germany CPIs. A downward revision to the Q3 PCE, a Beige Book which showed a slower economy and inflation in November, and dovish comments from Fed officials also added fuel to the positive sentiment towards Treasuries. Investors’ attention will be on the PCE and jobless claims data today and Fed Powell’s speech on Friday.

Volatility: The VIX ended at $12.98, 0.29 (2.29%) higher than the previous close. VVIX (VIX Volatility) rose 2.65 (3.11%) to 87.79, SKEW declined 2.86 (2%) to 139.82. VIX futures down to $13.90 (-0.1 | -0.71%) overnight. S&P500 and Nasdaq 100 futures up slightly during their nightly session to 4566.00 (+6.75 | +0.15%) and 16059.00 (+34.75 | +0.22%) respectively. Expect added volatility to the markets today as some economic indicators will be released (Core PCE Price Index, Initial Jobless Claims, Pending Home Sales).

Macro: US Q3 GDP was revised higher to 5.2% from 4.9%, above expectations of 5.0%. Consumer spending eased to 3.6% from the prior 4%, but the latest Black Friday-Cyber Monday expenditures will be incorporated to the Q4 GDP report. The PCE prices saw revisions lower, the headline was revised to 2.8% from 2.9% with the core revised to 2.3% from 2.4%. October PCE data will be in focus today. European CPIs came in softer than expectations. German CPI was 3.2% YoY, below the consensus and down from 3.8%. Spanish CPI was 3.2% from 3.5% (3.6% expected) with the surprise coming in the core, which printed 4.5% from 5.2% and 5.0% expected. Euro area inflation is reported today, with consensus at 2.7% YoY from 2.9%, but expectations may have shifted lower. Fed’s Mester, a hawk and 2024 voter, repeated monetary policy is in a good place and the Fed has time to vet incoming data. Bostic, a dove and 2024 voter, said that tighter monetary policy and financial conditions are biting harder into economic activity. Barkin stayed hawkish and said that he is not willing to take another rate hike off the table, warning he is still looking to be convinced on inflation. RBNZ decided to keep rates unchanged at 5.50% but shifted the path of OCR higher and does not expect rate cuts until mid-2025. We think RBNZ is looking at outdated data and may need a reality check. Australia CPI came in below expectations at 4.9% YoY for October from 5.6% previously and 5.2% expected, which led to paring of some of the RBA rate hike bets.

In the news: House Prepares to Drop China Investment Curbs from Defense Bill (Bloomberg), Jack Ma urges ‘change and reform’ at Alibaba (FT), Google Warns China Is Ramping Up Cyberattacks Against Taiwan (Bloomberg), Walmart shifts to India, cuts China imports (Reuters), Chinese factory activity contracts in sign of economy losing momentum ($FT), OPEC+ Talks on Oil Supply Cuts Drag Into Eve of Meeting (Bloomberg)

Macro events (all times are GMT):  Eurozone CPI (Nov) exp –0.2% MoM, 2.7% YoY & 3.9% core vs 0.1%, 2.9% & 4.2% prior (0900), US Initial Jobless Claims exp 218k vs 209k (1230), US PCE Deflator (Oct) exp. 0.1% & 3% vs 0.4% & 3.4% prior (1230), EIA Weekly Natural Gas Storage Change (1430), OPEC+ Meeting, Fed’s Williams (1315), ECB’s Lagarde (1230)

Earnings events: Today’s key earnings releases are Remy Cointreau, Elekta, Frontline, Elastic, Marvell Technology, and UiPath. Our focus is on UiPath, as this company is part of our AI theme basket, and the company is expected to report FY24 Q3 earnings (ending 31 October) after the US market close with analysts expecting revenue growth of 20% y/y and EBITDA of $35mn up from a loss of $58mn a year ago.

For all macro, earnings, and dividend events check Saxo’s calendar